The Model GST law stipulates each supply transaction to be taxed and hence, sales return would be taxed under GST.By Prashant Deshpande| Vaibhav Shah

Retailing in India is one of the pillars of its economy and accounts for about 10 percent of its GDP. The Indian retail market is estimated to be more than US$ 600 billion and one of the top five retail markets in the world by economic value.

The implementation of GST from 1 April 2017, will significantly improve the competitiveness and performance of India's retail sector with fungibility of tax credits across value chain and simpler compliances etc. However, prior to its roll out, it will be incumbent upon the Indian government to address certain concerns to foster long term growth in this sector. Industry believes that clarity on GST rates, valuation of stock transfers etc. will create broader acceptance from the retail community.

Several sectors such as garment and apparels enjoy exemptions / concessional tax rates) in excise & VAT and hence, Industry is expecting lower GST rate for these products.

Inter-state stock transfers which is a common phenomenon in retail industry, are proposed to be taxed under GST. However, there are differing theories around the method of valuation of these stock transfers and therefore, further clarity is required on specific valuation mechanism to value such stock transfers for levy of GST to avoid disputes. Similarly, the Model law does not adequately put to rest the controversy of taxability of post supply discounts which needs to be pre-determined and linked to supply invoices.

Another concern envisaged by the industry is treatment of goods return in case of B2C supplies. The Model GST law stipulates each supply transaction to be taxed and hence, sales return would be taxed under GST. However, the Model law does not prescribe any mechanism for refund or GST adjustment for sales return in case of B2C transactions, where the customer is not required to pay tax on sales return. This will have a massive impact on e-commerce sellers and hypermarkets who typically reimburse to entire amount (along with taxes) to customers in case of sales return. Accordingly, the law needs to provide specific mechanism to enable such retailers to either claim credit or allow adjustment of GST paid on such supplies.

Lastly, the industry is awaiting provisions enabling credit of non-recoverable taxes paid at the time of procurement of goods lying in closing stock on transition date, since sale of these goods would attract GST on its supply.

In a nutshell, though GST is likely to give a boost to the retail sector, lack of clarity on certain ambiguous issues is accounting for a lukewarm response to GST from the industry.

(The authors of the article are associated with Deloitte Haskins & Sells LLP)